Olympic Dam a groundbreaker

WA and Queensland may have been credited with carrying Australia through the global financial crisis, but BHP-Billiton’s Olympic Dam project in South Australia is set to change the resources landscape forever.

The dam is located 560km north of Adelaide and is the world’s fourth biggest remaining copper deposit, fifth largest gold deposit and the largest uranium deposit.

It was discovered in 1975 and mining commenced under Western Mining Corporation in 1988 before BHP acquired it as part of its takeover of WMC in 2005.

The Olympic Dam ore body is in the shape of a frying pan and current underground mining operations are concentrated on the ‘handle’.

Expansion is focused on an open cut mining operation to access ore in the ‘pan’ of the deposit.

To get an idea of its magnitude, BHP will spend $30 billion over six years and remove 350m of overburden just to access the pan of the ore body.

Estimates indicate the ore body has a 100-year mine life, but for planning purposes, the proposed expansion is focused a 40-year window. This takes the project through to 2050.

With the recent Japanese nuclear disaster still fresh in people’s minds, there are short-term concerns over the uranium industry.

But with reactors in China and the United States still being planned, designed and built, BHP doesn’t appear to share these concerns over the longer term.

As copper and gold prices are also at near-record highs, it’s a pretty simple investment decision from BHP’s perspective.

By the time the open cut mine is fully operational you can assume a carbon tax in Australia will be in full swing.

BHP directors appear to have catered for this by not committing to long-term coal-fired grid and gas supplies.

In the Olympic Dam Expansion Supplementary Environmental Impact Statement, forecasts show that the greatest greenhouse abatement opportunities lie with geothermal and solar thermal energy sources.

Mining uranium using geothermal and solar power supplies is a real possibility in the next decade.

Estimates show the Olympic Dam expansion will create up to 10,000 jobs directly and up to 15,000 flow-on jobs in associated industries.

This will have huge benefits for South Australia and its communities, not to mention the increase in exploration expenditure through the state as companies try to find the ‘next Olympic Dam’.

I have no doubt, once complete, this will be one of the biggest mines we will see in our lifetimes.

The Olympic Dam expansion does not have the final go ahead just yet, because it requires final approval from the SA and Federal governments and the BHP board.

A project such as this has the potential to underwrite BHP’s bottom line for years to come.

I don’t think it’s enough to have an immediate impact on the BHP share price, but if you are a value investor in BHP, it is a project that will define the company.

Considering the number of big and successful projects BHP is involved in, that is a statement I don’t make lightly.

For more information, contact Cameron Bartram at Sentinel Stockbroking on 9225 0028 or email cbartram@sentinelgroup.com.au

Disclaimer: Information contained in this article does not consider your personal circumstances. You should consult a stockbroking professional before making any investment decisions. Sentinel may hold positions in stocks discussed from time to time.